As the prospect of competitive devaluations looms, we may be about to relearn how important that nation remains.
From all outward appearances, countries in Asia are now engaged in competitive devaluations.
FORBES: Asian Currencies Tumble. Yes, This Is A Global Currency War.
In the case of gold, this involves the incentive for competitive devaluations of paper currencies, as well as persistent geopolitical uncertainty.
Economic and Monetary Union (EMU) was supposed to banish the competitive devaluations that threatened the single market in the early 1990s.
"If more and more countries attempt to depress their currencies, this could lead to competitive devaluations that will only know losers, " he said.
That will be a relief to South-East Asian exporters, who have come to fear that the cycle of competitive devaluations might never end.
Americans during the Great Depression voiced the same concerns about excess bank reserves, budget deficits, competitive devaluations and commodities speculation as they do today.
Because, says Sharon Spiegel, a Columbia University economist who has studied the currency phenomenon, they see competitive devaluations as a useful tool in international trade.
And what is the international community doing about the competitive devaluations?
Mr Mantega and Mr Meirelles have both spoken out against competitive devaluations by other countries, which have also done their bit to make the real look overvalued.
Since Japan and the rest of Asia account for 30% of world trade, competitive devaluations across the region would also transmit deflationary pressures to America and Europe.
Because imports only represented about 4% of GDP at the time the shift to a pure fiat currency and the competitive devaluations that followed had little immediate impact on most Americans.
But, as acknowledged in the paper, governments intervene in currency markets to pursue a variety of policy objectives (not just to secure an exporter advantage), including to defend the currency from competitive devaluations.
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He also noted that the Group of 20 leading industrial nations had pledged not to undertake competitive currency devaluations as such action undermines economic and financial stability.
The second way in which East Asia's financial traumas will spill over into rich industrial economies is that manufacturers in the region have become super-competitive thanks to devaluations of up to 40% against the dollar (see article).
In addition, the weak yen reduces the competitive advantage that the Asian devaluations would otherwise have given the tigers' currencies.
Asia's currency devaluations will give its companies a significant competitive edge over their U.S. counterparts.
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